Funding the Third Exchange

It was an important nexus of Britain’s cotton empire. Such importance is testified by the growing membership of the institution across the nineteenth century, especially in the period between 1840 and 1873 which is regarded by some as its golden age.[2]

The Exchange was extended in 1849 to accommodate the growing membership, but by 1865 the number of subscribers attending the building had again doubled necessitating a further enlargement. So, in 1865, it was decided to replace the building, leading to the creation of the Third Exchange in 1874. The Third Exchange was quite special as it was the first Exchange building with enough space for the scale of business within – a fact which lends further significance to the institution’s newly earned reputation as the “largest room in the world”.[3] The business deals made in this room affected millions of lives across the world.

Funding the Third Exchange 

The Third Exchange owes its creation to a well-established network of rich merchants. In 1866, the Board of Directors secured the means of financing their new building with an Act of Parliament which allowed them to increase their capital and borrow on mortgages.[4] Consequently, the Board called on all the Exchange Proprietors to buy the company’s new shares, and sought out rich lenders in their mercantile network and through regional newspapers.5 Between 1865 and 1874, they succeeded in raising a sum of roughly £271,867 (£262,550,000 in 2024) by selling a total value of £135,867 (£131,200,000) of their new shares and borrowing £136,000 (£131,350,000) on mortgages.6 While the proprietors could only buy a fixed amount of the new shares (proportionate to the value of the stock they already held), mortgages were more flexible, and lenders could advance a more varied sum of money.7 Of all the funds borrowed, nearly 24% were lent by the partnership of Thomas Stewart Gladstone, Murray Gladstone, George Clerk Arbuthnot and Henry Walker, thus making them the largest mortgage lender between 1865 and 1874.8 They offered £33,000 (£31,870,000) on mortgage: providing for nearly 12% of the total funds raised for the establishment of the Third Exchange in this period.

The Arbuthnots

George Clerk Arbuthnot was born to what was, in the 18th CE, an established trading and landowning family in north-east Scotland.[9] But following the failure of the family trading enterprise, Arbuthnot & Guthrie, in 1772, the Arbuthnots relied upon the support and assistance of friends to rebuild their fortunes.[10] This period also marks the beginning of the family’s direct investment in the British Empire’s plantation economy. George Clerk Arbuthnot’s father, Sir William Arbuthnot, 1st Baronet of Edinburgh (1766-1829), began his career as an assistant to his maternal uncle John Urquhart (1750-85) on the latter’s cotton plantations on Carriacou island, Grenada.[11] After John’s death in 1785, he became the manager of his uncle’s plantations and earned a salary of £100 a year till 1794.[12] That year likely marked the end of Sir William Arbuthnot’s direct involvement in the Carriacou plantations, but the significance of his uncle’s support likely moved him to revise his coat of arms in 1814 – to the traditional Arbuthnot arms were added “three Boars’ Heads … to show his maternal descent from the family of Urquhart of Cromarty”.[13] Sir William Arbuthnot died in 1829, bequeathing £3000 (£333,500 in 2024) to his son George Clerk Arbuthnot who was then 26 years old.[14]

George Clerk Arbuthnot 

As was customary for the third son of a land-owning family, George Clerk Arbuthnot went on to make a career in trade.[15] He left for India in the early 1830s and soon established himself as a senior partner in the managing agency Gillanders, Arbuthnot & Co. in Calcutta.[16] Managing agencies were a type of trading firm unique to nineteenth-century British India: composed as a private partnership, they channelled investments into a range of Indian industries and virtually came to control them.17 The investments of Gillanders, Arbuthnot & Co. were sourced, in part at least, through the profits made from slave labour in the Carriacou plantation by the Arbuthnots.  Thus, the east and the west became linked in a global system of capitalism, industry and colonialism.

In the 1830s, Gillanders, Arbuthnot & Co. financed the migration of indentured labourers from Bengal to other British Colonies where demands for “cheap labour” had grown following the abolition of slavery.[18] George Clerk Arbuthnot was personally invested; pioneering the scheme by transporting 36 labourers in 1834 to his brother James Edward’s sugar plantations in Mauritius.[19] More involved agency activities began in the 1840s, when the firm began investing in the indigo industry and undertook direct management of production.[20] The firm later expanded the breadth of its portfolio to the cotton and opium industry in India, mainly focusing on shipping agency work.[21] Although the degree of involvement was varied, Gillanders, Arbuthnot & Co. made enormous profits from each investment. As a senior partner owning at least £20,000 capital in the firm, George Clerk was entitled to a 20% share of the annual profits (or losses) and 5% interest on his capital.[22]

Indenture Migration Trade 

While in India, George Clerk Arbuthnot worked together with his younger brother James Edward Arbuthnot, acting as the agent for his company Hunter, Arbuthnot & Co. in Mauritius.[23] One of his most important actions in this capacity was the migration of 36 Indian labourers in 1834 to Hunter, Arbuthnot & Co. to work under five to seven year contracts in Mauritius. The labourers came from tribal groups in the north of Calcutta, and most were recruited with false promises if not kidnapping.[24] High mortality rates were common during the sea journey due to cutbacks in medical facilities, and majority of the planters broke contracts and refused to pay money wages.[25] But the absence of government regulations which allowed these abuses, also made indenture labour exceedingly profitable for managing agencies and planters alike.[26] Almost immediately, the venture became widely known among the merchants and planters of the British Empire as the first ‘successful’ experiment with Indian indenture labour.[27] The passing of the Slavery Abolition Act in 1833 had filled British planters with ‘doubt and uncertainty’ on the availability of plantation labourers.[28]

Arbuthnot’s ‘success’ in 1834 made Indian indenture migration a viable model for post-slavery plantation labour regime. Consequently, the British planter John Gladstone wrote to G C Arbuthnot in 1836 to discuss the viability of employing Indian indenture labourers on his sugar plantation in British Guiana (today Guyana).[29] Their letters finalised the central tenets of the Indian indenture system owing to John Gladstone’s parliamentary influence.[30] This communication also marked the beginning of a lasting partnership between the Gladstones and George C Arbuthnot, as in the following years many Gladstones would join Gillanders, Arbuthnot & Co. as senior partners.[31] The history of the Gladstones and their role within the Royal Exchange is covered by Moleka in her blog.

The mortgages to the Royal Exchange in 1865-74 can also be viewed as a continuation of this partnership. As merchants who had previously worked together to pioneer the Indian indenture trade shifted their attention to the building of the Third Exchange in the late 1860s, the Manchester Royal Exchange became a node in the mercantile network that sustained the plantation economy in the nineteenth century.